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Strong 1HFY25 show!   

BD to keep launches momentum ongoing

 * Godrej Properties (GPL) achieved its best ever second-quarter bookings of INR52b, guided by strong demand momentum (up 3% YoY). New launches/existing projects accounted for 53%/47% of total sales.  

* GPL launched INR61b worth of projects across 5.6msf of saleable area, of which 45% of inventory was sold during the quarter and contributed 53% to pre-sales value.  

* Sales volume was flat at 5.2msf, while realizations moved up 5% YoY at INR10,093/sft due to a better product mix. MMR reported over 4.5x jump in sales and contributed 42% to total volumes, while NCR/Bangalore contributed 23%/14% respectively.  

* GPL launched ~49% of the planned launches in 1H and has achieved 51% of FY25 pre-sales guidance of INR270b. The management is confident to surpass its FY25 launch (INR300b) and pre-sales guidance on the back of strong inherent demand on ground. Till date achieved 87% target of BD.

* P&L performance: Revenue surged 219% YoY to INR10.9b – 110% higher than our estimate. Gross margin was healthy at 44%; however, higher other expenses due to the launches limited the operating profit to INR319m. PAT jumped 4x to INR3.3b due to higher other income of INR2.5b.

 * For 1HFY25, GPL clocked revenue of INR18.3b, up 43%, backed by the delivery of 9.3msf. GPL reduced its operating loss to INR931m and reported 313% YoY growth in PAT to INR8.5b, guided by other income of INR12b.

  Net debt rises due to increased investments in land  

* GPL’s gross collections jumped 63% YoY to INR43b, leading to over 8x jump in OCF (pre-interest and tax) to INR18.3b, despite 36% growth in construction and other outflows.

 * The company spent INR16.8b on new land investments and approvals, which resulted in a cash shortfall of INR1.4b and an increase in net debt to INR75.7b or 0.7x of equity (vs. 0.71x as of Jun’24).  

Key highlights from the management commentary

* Strong H2FY25 anticipated: The management is optimistic about building on the current momentum, with plans to launch projects in Worli, Golf Course Road in Gurgaon, Sector 44 in Noida, Bangalore, Pune, Kolkata, and Hyderabad.

* Record cash flow and earnings expected: Aiming to achieve a record year from cash flow and earnings perspectives.

 * Continued growth in FY26: Targeting to sustain growth on top of the current year's exceptional sales.

 * Focus on replenishing land bank: Emphasized the importance of land bank replenishment for sustaining growth, given the faster-than-anticipated growth rates. 

*  Market overheating: While acknowledging chatter about market cooling, the company believes demand remains strong for its projects.

*  Land value appreciation: Highlighted that land values are matching end property prices. Emphasized disciplined land acquisition strategies, targeting a 20-25% IRR on projects.

*  Pricing trends: Significant price growth noted in NCR and Bangalore. Observing premiumization in the MMR portfolio with several high-end projects.

 *  Construction cash flow: Expected acceleration in construction cash outflow, especially toward the year-end and mid-next year, as projects reach advanced stages.

*  Capital raise deployment: Plans to deploy a substantial portion of raised funds into its Mumbai portfolio.

 *  Long-term goal: Aspires to lead in each individual market besides maintaining a strong national presence.

*  Promoter stake: Aims to maintain promoter stake levels close to or above postfundraising levels.

*  RERA account cash: Currently holding about INR30b in RERA accounts, to be used for construction and released as projects progress.

 Valuation and view

*  GPL completed 1HFY25 with a strong performance across key operational parameters of pre-sales and cash flows. With a strong launch pipeline, it remains on track to achieve/surpass its full-year pre-sales guidance. Thus, we keep our FY25/FY26 pre-sales estimates unchanged.  

*  While gross margin has sustained at a healthy 35-40% for recognized projects in P&L, the higher scale of operations has led to a proportionately high overhead increase, leading to subdued operating profits. We expect sales booked in the last two years with a better margin profile and outright ownership will be recognized after FY26/FY27, which will allay investor concerns.

*  We believe GPL will continue to surprise on growth, cash flows, and margins, given its strong pipeline and healthy realizations, which have been the key investor concerns. We maintain our BUY rating with an TP of INR3,725, implying 26% potential upside.   

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SEBI Registration number is INH000000412